Manufacturers question RBS 'nationalisation'

Caution needed as government looks to boost supply of credit

Manufacturers have warned that a putative nationalisation of The Royal Bank of Scotland by the government to boost lending to businesses should not deflect attention from other strategies to increase the credit available to firms.

According to a report in today's Financial Times, a debate is going on within government on the possibility of buying up the remaining 12% of RBS shares not already owned by the taxpayer to force the bank to start lending to businesses. The FT reported that ministers believe that such a move could be blocked by RBS's remaining shareholders.

Schemes such as Funding for Lending, which was launched this week, have been intended to boost loans to businesses. It is too early to say what the impact of the latest scheme may be, but manufacturers have become increasingly frustrated with the difficulties in securing credit through the banking system.

But manufacturers' organisation the EEF said any nationalisation of RBS needed to be weighed carefully against other measures that could help increase the flow of credit in the economy. Chief economist Lee Hopley said: “The debate around banking reform must address the key problem affecting the economy – the difficulty SMEs are having in accessing finance from the banks.

“There is a range of possible options to solving this problem, including the creation of a state-backed bank, but this would carry considerable cost and risk for the taxpayer. This should be squared off against other possible interventions, including increasing bank competition, increasing securitisation of SME loans, and more vigorously promoting existing government schemes such as Funding for Lending, which has only just been launched.”

Lloyds Banking Group was forced to sell hundreds of its branches last month because of European competition rules. The EFF has long argued in the wake of the Vickers report that increased competition among banks on the High Street would be good for industry.

Hopley said: “There is no silver bullet solution to getting the flow of finance moving to SMEs – and we should be wary of jumping to a ‘big bang’ solution without being clear on what we are trying to achieve.”